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From the very beginning, the value of fiat currency has always been tied to trust in the issuing government. But will this trust last forever? Fast forward to today and we’ve seen an increasing economic uncertainty across the world’s fiat markets, underlining the fact that stability of fiat currency is not guaranteed.
Even the dollar is not invulnerable to the impact of inflation and market shocks due to national disasters, political unrest, or eroding trust in the US government’s ability to repay its debts. This reality highlights the need for a truly stable store of value that incorporates the core ideas behind cryptocurrencies, including borderlessness and decentralization.
Increasing economic uncertainty around the world
While the overall global economy consecutively grows each year, uncertainty seems to be growing with similar speed. All over the world, countries are experiencing extreme circumstances due to inflation and debt stemming from past global recessions.
From the economic catastrophe of Venezuela’s shrinking economy to the debt crisis in Greece that has led to many bailouts from other countries, economies are floundering and will need to come up for air soon. If things continue the way they are, populations could suffer from refugee crises, upticks in violence, and more.
The world relies on the US dollar
As countries continue to grow uncertain of their economic well-being, they are also heavily relying on the US dollar. USD is one of the most stable currencies, and, therefore, has been used as the default financial index across world markets. Because of universal belief in the US economy, over 65 countries peg their own currencies to the dollar or use the dollar as their main form of currency.
With higher volatility and inflation, the price of goods and services skyrockets. In Venezuela, for example, over a third of the population uses the US dollar on a daily basis, with the hopes that inflation rates will drop, and Venezuelan prices will decline and level out to where they used to be. With so many other economies in turmoil, there is a need for something much more stable to avoid the worst.
Political control has turned the value of the dollar into a playground
Because trust is the name of the game, one would hope the US government at least will look out for its own economic interests.
But whether we like it or not, the government truly has a big hand in manipulating the value of the US dollar, as demonstrated by how easily Trump can put his personal interests first.
Trump’s tax cuts in 2017 may have made individuals and businesses happy paying less in taxes, but the dramatic cuts have led to a substantial increase in US sovereign debt. As debt increases, the US dollar depreciates.
Stablecoins aim to solve volatility issues
We’ve seen the US economy go through two of the worst economic downturns starting with the Great Depression after the stock market crashed in 1929 and again in 2008 during the financial crisis.
Today, we’re up against Trump’s trade war ambitions, which is predicted to put America on a disastrous path with China and Europe, among other countries over trade. Bearing all of this in mind, I repeat, there is a need for a global stable value solution as the US dollar itself is not as stable as most countries believe it to be, and the world might be on the brink of another economic crisis.
Cryptocurrencies have tried to address this issue of instability with stablecoins. Big institutions such as IBM are developing the technology to introduce a price-stable coin, but looking closely at the stablecoin landscape, an underlying theme is that they are either pegged to the US dollar, which I have discussed to be unstable in itself, or pegged to another cryptocurrency, an asset class that remains extremely volatile. The creation of a truly stable store of value will constitute a real breakthrough for individuals, businesses, and economies around the globe.
Daniel Popa, founder and CEO of Anchor